Avoiding the EEOC

If statistics are any indicator, it is getting harder for Tennessee employers to avoid the EEOC. Of course, statistics are only as good as the underlying data but here, I want to present the underlying data and let you draw your own conclusions.

I'll start by recounting the fact that some of my clients (and I hear of other employers) think, "it won't happen to me" or "everyone in town" fails to comply with this rule, why should I? Here is why.

The EEOC has released its "Performance and Accountability Report" for FY 2009. While the report lets the EEOC say how well it is doing its job, it also includes basic information on the charges that are filed and the lawsuits the EEOC decides to file. (The EEOC divides charges between the federal and private sector so I will only address private sector data.)

I like to look at trends and one significant trend for employer is that in FY 2008, the EEOC received 95,402 private sector charges of discrimination, which, the EEOC says, is a 15.2% increase in all charges (including retaliation charges) filed in FY 2007. This means 12,000 more charges were filed in FY 2008 than in 2007 and that the EEOC is beginning FY 2009 with an "inventory" of nearly 75,000 charges. That means employers (and employees) will have to wait longer for the EEOC to investigate and resolve charges of discrimination unless, as the EEOC says it is trying to do, the EEOC makes "major improvements in case processing."

The EEOC also likes to mention how it conducts litigation. In FY 2008, the EEOC filed filed 290 lawsuits alleging some kind of discrimination or retaliation (as opposed to actions seeking enforcement of an EEOC subpoena). Now this is significant for Tennessee employers for several reasons. First, I can recall at least three lawsuits that the EEOC has brought against East Tennessee employers in the last one or two years. Second, the EEOC's success rate in litigation is statistically better (50 percent v. 38 percent) than that of private attorneys. (That doesn't reflect on the quality of representation so much as the disparity in litigation resources and the ability to select which lawsuits to bring.)

One other point the EEOC made was that its lawsuit statistics show it is under-filing age and disability discrimination claims (exactly how the EEOC measures this need not be explained here, it is enough to say this is what the EEOC believes). So, while employers should always be careful in making employment decisions, employers should also be aware that the EEOC wants to normalize its statistics on the age and disability lawsuits it brings.

It is hardly surprising that with the economy tanking, charge filings are up but to be up 15 percent in just one year is pretty dramatic. To put it in perspective, private sector charge filings were up 9 percent in FY 2007 (82,792 charges were filed), but up only a negligible amount (less than 500) in FY 2006 when 75,768 private sector charges of discrimination were filed as compared to the 75,428 filed in FY 2005, 79,432 in FY 2004 and 81,293 filed in FY 2003. And if you average all the prior fiscal years (where there were on average 78,943 charges filed) that means charge filings in FY 2008 are up 17.25 percent.

So, if this means anything, it is a reminder that difficult economic times means an increase in employment related litigation. Even more so that usual, a wise employer should carefully plan and document all of its employment decisions, conduct fair investigations before imposing discipline for misconduct and consult with competent counsel whenever there is any doubt about the approach to be taken in any given situation.

Fair Investigations – A Follow Up

In Sunday's post I addressed when an independent investigation will "sanitize" the employer's decision even if a biased subordinate employee might have otherwise influenced the employer to fire another employee. Yesterday, the Sixth Circuit issued another decision on independent investigations and it is worth revisiting the issue to show where an employer did something right.

Rock-Tenn fired a black employee for insubordination. The employee presented evidence that his immediate supervisor was biased but the employee failed to show the supervisor played any role – other than to file a written report on the insubordination incident - in deciding to fire him. The court ducked deciding whether or not the biased supervisor played a role in the decision by holding the employer had conducted an independent investigation during which it gave the employee the opportunity to present his side of the story and that the decision to fire the employee was made only after the employee was heard. So the difference between what Rock-Tenn did and what the employers in Madden and Martin did was to show they listened to the employee and formed their opinion only after hearing the employee's version of events. This case show that even where there is very strong evidence that the immediate supervisor is a first class bigot, the employer can still prevail by conducting an independent investigation.

One judge, however, dissented. I don't normally mention dissents – few attorneys read them and employers don't want to hear lawyers squabble about legal issues. It is worth discussing Judge Moore's points not so much because she is right but because of the impact her views would have on employers were they to prevail.

Judge Moore would have found Rock-Tenn liable because she thought the employer's investigation "severely deficient." While Judge Moore offers good HR policy advice, it is difficult to see how her criticisms of the investigation establish the employer intentionally discriminated against the employee. Citing Madden, Judge Moore faulted Rock-Tenn's investigation because no one "investigated the possible role that [the supervisor's] discriminatory animus may have played in the incident."

Here is where I think Judge Moore went too far. If an employer gives the employee a meaningful chance to present his (or her) version of events, how much more must an employer do to avoid being tagged in a discrimination suit? The employee here had filed two different EEOC charges and several grievances before his insubordination incident so it isn't as if he was timid about asserting charges of discrimination or unfair treatment. (In fact, the employee's grievance over this termination was sustained by an arbitrator.)

Now, I might would agree with Judge Moore had the employee presented some evidence that the supervisor's bias caused the incident that led to his insubordination. While the discrimination laws don't give an employee the license to be insubordinate, evidence that a supervisor's bias somehow triggers an employee's misconduct might be something an employer should investigate. I might also agree had there been some evidence that when interviewed the employee made claims that the employer then ignored. Neither situation occurred here, however.

Judge Moore states her position as being: "When an ultimate decisionmaker has knowledge of a supervisor's racial animus and that supervisor reports an employee in the protected class leading to his termination, management's investigation should not focus only on the employee's alleged misconduct. Instead, management should broaden the scope of the investigation to consider what role, if any, the supervisor's racial animus may have played in the events in question." No doubt, this would be a good rule from an HR point of view but countless decisions have held that courts don't act as "super-personnel departments." Hedrick v. Western Reserve Care System, 355 F.3d 444, 462 (6^th Cir. 2004).

Right now, Judge Moore's view is not the law and her decision cites no other court decision which has espoused her view. So far as I have found, the prevailing view is that an employer simply needs to give the employee a meaningful opportunity to tell his version of events and, of course, the employer needs to listen to the employee with an open mind before making the final decision. Indeed, the principal decision Judge Moore cites (for the reason I explain below) says this is all an employer need do. See Brewer v. Bd. of Trs. of Univ. of Ill., 479 F.3d 908, 920 (7th Cir.), cert. denied, 128 S. Ct. 357 (2007).

Of course, a prudent employer will err on the side of going overboard in an employee misconduct investigation. There is every good reason to do so for, as Judge Moore acknowledges, when an employer is faced with conflicting stories between two employees "there is probably no practical step an employer can take beyond independently investigating the misconduct charges that will reduce the chances of an employee's racism influencing its behavior." (quoting Brewer, supra).

When Two 20-minute Unpaid Breaks Don’t Add Up to 30 Minutes

Most Tennessee employers know that Tennessee Code Annotated § 50-2-103(h) requires them to provide employees who work six hours consecutively with a 30 minute unpaid rest or meal break. Last week, the Tennessee Attorney General addressed whether an employer complied with this requirement by providing two 20-minute unpaid breaks that the employees could take however they wish. The answer was "no" but there were qualifications.

Tenn. Code Ann. § 50-2-103(h) provides:

Each employee must have a thirty (30) minute unpaid rest break or meal period if scheduled to work six (6) hours consecutively, except in workplace environments that by their nature of business provide for ample opportunity to rest or take an appropriate break. Such break shall not be scheduled during or before the first hour of scheduled work activity.

A violation of this provision could subject the employer to a criminal prosecution (for a Class B misdemeanor) or a civil penalty from the Tennessee department of labor. So far, there is no definitive ruling on whether employees could sue privately for an alleged violation.

The attorney general's opinion said permitting two 20-minute breaks during the day would not comply with the statute because the statute requires at least one 30-minute unpaid break. The opinion also said, however, that the 20-minute breaks may let the employer fall within the "ample opportunity to rest or take an appropriate break" exception but that would depend on the specific facts.

The paragraph on the exception seems to muddy the waters. The statute provides that the exception applies when the "workplace environment" when the "nature of business" provides ample opportunity for work. If the AG is going to interpret the statute literally when it says "30 minutes" as if it read 30 consecutive minutes then it is somewhat inconsistent to say that breaks might be part of the nature of the business workplace environment.

As a practical matter, the opinion could result in employees receiving fewer or shorter unpaid breaks. If employees must have 30-minute consecutive breaks when working six consecutive hours this opinion means that the "six consecutive hours" necessarily includes work schedules where the employer provides 20 minute breaks.

Most employers know that under the Fair Labor Standards Act regulations, a 20 minute rest break is the minimum amount of time that can be given to employees without having to pay them for the entire break. And to be clear, Tennessee employers only have to provide one 30-minute unpaid break per shift. Nothing in federal or Tennessee law says employees must get even one 20-minute break and a 30-minute lunch break. But of course, nothing prohibits a Tennessee employer from providing additional unpaid breaks during the day.

The danger with unpaid breaks isn't that the Tennessee district attorney generals have their white collar crime unit out looking for employers to prosecute under § 50-2-103(h). Nor is it ordinary for the state DOL to impose a civil penalty for a violation. The real issue that arises in litigation is when employers impose unpaid breaks without adequately documenting that employees are not working (and making sure employees are not working for the DOL meal period regulationsrequire the employee be "completely relieved from duty" if the break is unpaid).

Unfortunately, it is quite easy for an employee to allege they were forced to take unpaid breaks but still expected to work. (Some employers make this allegation even easier by always complying with the regulatory requirements.) Wal-Mart recently which included allegations of employees being expected to work through unpaid breaks and in California, lawsuits of this nature are a dime a dozen.

To bring the issue closer to home, the Memphis Commercial Appeal reports that Baptist Memorial Hospital there is defending a collective action lawsuit under the FLSA brought by employees who claim the Hospital unfairly deducted half-hour meal breaks from their paychecks even if the employee worked through the meals. The deduction was automatic unless employees filled out an exception log.

So, if you want to provide unpaid meal breaks, you can do so. They must be a minimum of 30-minutes; two 20-minute breaks aren't enough. And make sure, whatever you do, you keep accurate records and do not ever let employees to perform anything more than de minimus tasks during the unpaid break. (I promise to write more on the de minimus issue later as it is a greatly misunderstood rule.)

Conducting a Fair Investigation Into Employee Misconduct

Two decisions from the Sixth Circuit issued around Thanksgiving serve to emphasize the importance of an employer conducting a quality investigation before it fires an employee for misconduct. While I'll try to simplify the facts somewhat, understanding some facts are important to understanding why the Sixth Circuit held, in both cases, why a jury could reasonably find the employer discriminated against the employees.

Madden v. City of Chattanooga, the court of appeals affirmed a bench trial liability finding in a race discrimination claim. The black plaintiff worked in the service department and was fired for setting off a firecracker at work. His supervisor reported him. Plaintiff never disputed doing the deed. White employees had also set off firecrackers at work without being disciplined and there was testimony that the same white supervisor who reported the plaintiff had been present when white employees set off firecrackers and he had not reported them. Another supervisor who saw white employees use firecrackers at work merely told the employees to "knock off" the horseplay.

Madden would be a routine disparate treatment case except for the fact that the decision to fire Madden was made by senior managers who, the facts showed, did not know that white employees had set off firecrackers and for whom there was no evidence of a biased motive. (The Seventh Circuit calls this a "cat's paw" type of case. Shager v. Upjohn Co., 913 F.2d 398, 405 (7^th Cir. 1990)). In a crucial footnote, the Sixth Circuit pointed out that the "scope and nature" of the City's investigation before firing Madden was "unclear" but appeared to have been "limited" to interviewing the biased supervisor and the plaintiff.

To explain, the federal courts of appeal widely diverge on when the bias of a subordinate is imputed to the decisionmaker and the Supreme Court has twice expressed an interest in resolving the dispute. But one recognized way to avoid the cat's paw problem altogether is to conduct an independent investigation because that investigation should break the causal chain between the biased report of the subordinate and the final employment decision. Wilson v. Stroh Companies, Inc., 952 F.2d 942, 946 (6th Cir. 1992) is one such decision and other courts have also recognized the principle. Pennington v. City of Huntsville, 261 F.3d 1262, 1270 (11th Cir.2001) ("[w]here a decisionmaker conducts his own evaluation and makes an independent decision, his decision is free of the taint of a biased subordinate employee."); Willis v. Marion County Auditor's Office, 118 F.3d 542, 547 (7th Cir.1997) ("[W]hen the causal relationship between the subordinate's illicit motive and the employer's ultimate decision is broken, and the ultimate decision is clearly made on an independent and a legally permissive basis, the bias of the subordinate is not relevant."). In Cariglia v. Hertz Equip. Rental Corp., 363 F.3d 77, 87 n.4 (1st Cir. 2004) while the court held a jury trial was required but the court also observed that the employer would have won had it given the accused employee a "meaningful chance to address the allegations against him").

Madden amounts to a crack-down on what the court held was a less than adequate investigation. Remember the crucial footnote? So, with an "unclear" investigation which was "limited," an employer hangs itself out to dry even if the decision is made by an undisputedly non-biased decisionmaker. It is hard to say what the employer did in the investigation but the court clearly faulted the employer for not finding out whether other employees had been allowed to engage in similar conduct without being disciplined.

The decision in Martin v. Toledo Cardiology Consultants, Inc. shows what happens when the court conclude the employer's investigation amounted to a fait accompli. The employee had worked in the same doctor's office for years but then a new doctor assumed control of the practice. The new doctor didn't exactly follow the best employment practices; he reorganized the office, designating "favorites" (all of whom were under 40) as "team leaders" and telling employees his treatment of the "favorites" would not be subject to question. The doctor complained to the plaintiff about some of her conduct (it was clear the court found these complaints petty to the point of harassment) and later confronted her with evidence that she had used of racial slur to describe a patient. The slur was allegedly heard by another doctor and one of the "favorites." During the meeting, plaintiff signed a document admitting to the racial slur. As a result, she received a salary reduction, was put on probation and ultimately fired over a dispute about the work she wanted to perform. At her deposition, however, she flatly denied making the racial slur.

Like Madden this case largely turned on the quality of the investigation. (Unlike Madden, of course, this case didn't concern an "independent" investigation within the meaning of the "cat's paw" cases because here the decisionmaker was supposedly biased against the plaintiff.) The decisionmaker made a number of mistakes but what seemed to most trouble the court was that he didn't seem to listen to the plaintiff when he asked if she had uttered the racial slur. To be sure, there was evidence she had said it and she did sign a document saying she had said something (the majority and dissenting opinions conflicted on this point) but the court described the plaintiff being presented with "documents that she could sign, quit, or be fired." And the plaintiff testified that she was single and helping to support her mother, so she needed the job and therefore signed the papers. So, despite evidence from two witnesses that plaintiff had referred to a patient in a racially derogatory manner, and despite the fact that she had signed a document admitting to using a racial slur, the court nevertheless found plaintiff's deposition testimony created a factual dispute as to whether or not the employer made a reasonably informed decision in disciplining her for the racial slur. (The investigation into the reasons given for firing plaintiff was not any better but I don't need to bury my point.)

In theory the quality of the investigation shouldn't matter but practically it does because a good investigation can remove any dispute over the facts. I easily found three fairly recent Sixth Circuit decisions where the employer won because it conducted a full investigation and fairly resolved any factual disputes which arose during it. By doing a full and fair investigation, the employers were able to show that the decision was honestly held based upon the facts it knew at the time. Abdulnour v. Campbell Soup Supply Co., LLC, 502 F.3d 496, 502 (6th Cir. 2007); Michael v. Caterpillar Fin. Servs. Corp., 496 F.3d 584, 588 (6th Cir. 2007); Wright v. Murray Guard, Inc., 455 F.3d 702, 707-709 (6th Cir. 2006).

So while none of these decisions say so, the quality of the investigations played a very significant role in the outcome. In Martin evidence that the outcome was predetermined helped kill the employer's defense. In Madden, while the plaintiff was interviewed, that alone was not enough. And Madden shows that an employer must always determine whether or not there have been prior similar incidents by other employees outside of the protected class. Had the employer in Madden shown that it had asked the employee whether or not he knew of any other times other employees had thrown firecrackers, no matter what the answer, the employer certainly would have been much better off in making the decision and/or in defending the lawsuit. And worst case scenario, if an employer ever has to defend a decision to a jury, a thorough and fair investigation unquestionably helps persuade jurors that no discrimination motivated the decision.

Christmas Bonuses and Overtime

One of the heart-warming stories over the long holiday weekend was about a family owned business who sold their business and gave employees sizable bonuses derived from the sale. The amount of the bonus was based upon years of service with the company. But being an employment attorney I am trained to look a gift-horse in the mouth and my immediate thought upon hearing the story was how could the bonus be structured so as to avoid overtime liability? After all, the Fair Labor Standards Act provides that all "remuneration for employment" must be included in the amount that is used to calculate overtime (this amount is called the "regular rate"). Thes statute then excludes certain payments, one of which is discretionary bonuses, another, gifts and payments on special occasions.

So, not all bonuses must be included in the regular rate, however. As to discretionary bonuses, both the fact of the payment and the amount must be discretionary. The Department of Labor regulations, 29 C.F.R. 778.211, explain that the employer must pay the amount without "prior promise or agreement" and there must not be a contractual right to the bonus. This type of bonus includes, the DOL says, attendance bonuses, individual or group production bonuses, bonuses for quality and accuracy of work, bonuses contingent upon the employee's continuing in employment until the time the payment is to be made and the like.

Congress recognized, however, that only Scrooge would create a disincentive for employers to pay Christmas bonuses so a separate provision covers "sums paid as gifts, payments in the nature of gifts made a Christmas time or on other special occasions." There are two catches here. First, even a Christmas bonus must be a "gift" as in the employees must not have a contractual right to the payment but the DOL recognizes that employees tend to expect Christmas bonuses so the regularity of the payment is not a problem here.

A second catch is that the bonus cannot be based upon hours worked, production or efficiency for if it is, the amount must be accounted for in the regular rate. The DOL regulation, 29 C.F.R. § 778.212 further provides that the bonus can (without impacting overtime liability) be based upon the employee's "length of service with the firm." The bonus amount can also be based upon the salary or regular hourly rate so long as it is not based upon or derived from the hours worked, production or efficiency. The DOL also recognize that bonuses based upon total earnings, as opposed to straight-time earnings, need not be included in overtime calculations because mathematically, the bonus will already include pay for overtime hours worked. Combinations can also be made, such as where the bonus is based upon two weeks salary and an additional amount for years of service.

As any HR manager knows, no good deed goes unpunished, so if you are fortunate enough to be paying out year-end bonuses, be aware that there are overtime considerations that can and should be avoided.